Sunday, July 1, 2012

Obama Victorious, Taxes To Rise

Those opposed to Obamacare, virtually all Republicans, probably should have realized that the Supreme Court does not convene to decide political issues. On Thursday – And here one can hear disappointed Republicans grumbling, “A day that will live in infamy…” – the Supreme Court adroitly stepped over the political puddle, leaving Obamacare, apart from some few minor adjustments, virtually intact.

Republicans had argued that the mandate provision, which assigned a penalty for people or businesses that declined to bow their necks to the Obamacare scimitar, was unconstitutional. Should the court find the provision constitutional, it would herald in a new and ruinous doctrine; namely, that the federal government can order citizens to purchase a service or product, a power never before exercised by congress. The court decision said, in effect, that Congress had no constitutional authority to claim such power through appeal to the commerce clause.

Obamacare was sold to congress – and the American public –with the proviso that it would not be financed through taxes, a political problem avoided when the Democratic architects of Obamacare decided to finance the additional costly charges the program entailed though a penalty fee assigned to those who did not wish to purchase health care insurance.

The justices shut down the commerce clause in the Constitution as a pretext that would allow the state to compel citizens to purchase a product or suffer a severe monetary penalty; a significant majority of the justices agreed on this point, including Justice Roberts. But Roberts, in his unprincipled decision, opened a door the majority of justices thoughtthey had firmly locked and bolted. The constitutionality of the Obamacare bill ultimately depended, the majority asserted in a decision written by Roberts, on nomenclature: It would have been unconstitutional for Congress to assign a penalty fee for non-compliance; but if Congress were to raise the requisite money through a tax, President Barack Obama could overleap the constitutional hurdle.

One left of center commentator, George Stephanopoulos of ABCNewsquestioned President Obama closely in September 2009 concerning his instance that the proviso was not a tax:

STEPHANOPOULOS: That may be, but it’s still a tax increase.

OBAMA: No. That’s not true, George. The — for us to say that you’ve got to take a responsibility to get health insurance is absolutely not a tax increase. What it’s saying is, is that we’re not going to have other people carrying your burdens for you anymore than the fact that right now everybody in America, just about, has to get auto insurance. Nobody considers that a tax increase. People say to themselves, that is a fair way to make sure that if you hit my car, that I’m not covering all the costs.

STEPHANOPOULOS: But it may be fair, it may be good public policy…

OBAMA: No, but — but, George, you — you can’t just make up that language and decide that that’s called a tax increase. Any…

STEPHANOPOULOS: Here’s the…

OBAMA: What — what — if I — if I say that right now your premiums are going to be going up by 5 or 8 or 10 percent next year and you say well, that’s not a tax increase; but, on the other hand, if I say that I don’t want to have to pay for you not carrying coverage even after I give you tax credits that make it affordable, then…

STEPHANOPOULOS: I — I don’t think I’m making it up. Merriam Webster’s Dictionary: Tax — “a charge, usually of money, imposed by authority on persons or property for public purposes.”

OBAMA: George, the fact that you looked up Merriam’s Dictionary, the definition of tax increase, indicates to me that you’re stretching a little bit right now. Otherwise, you wouldn’t have gone to the dictionary to check on the definition. I mean what…

STEPHANOPOULOS: Well, no, but…

OBAMA: …what you’re saying is…

STEPHANOPOULOS: I wanted to check for myself. But your critics say it is a tax increase.

OBAMA: My critics say everything is a tax increase. My critics say that I’m taking over every sector of the economy. You know that. Look, we can have a legitimate debate about whether or not we’re going to have an individual mandate or not, but…

STEPHANOPOULOS: But you reject that it’s a tax increase?

OBAMA: I absolutely reject that notion.

Prior to the Supreme Court’s decision, the non-partisanCongressional Budget Office (CBO) determined that Obamacare would be very costly indeed. Initially projected at a cost of $940 million, the CBO determined way back in mid-March that Obamacare would cost $1.76 trillion over a ten year period. In September, 2009, Mr. Obama's pitch to the congress that passed the bill was considerably understated: “Now, add it all up, and the plan I'm proposing will cost around $900 billion over 10 years -- less than we have spent on the Iraq and Afghanistan wars, and less than the tax cuts for the wealthiest few Americans that Congress passed at the beginning of the previous administration."

The Obamacare bill contains 20 new or higher taxes on American families and small businesses, one of the largest tax increases in American history.

The list below, provided by Americans For Tax reformand arranged by effective dates, records the $500 billion-plus in tax hikes over the next ten years. The list indicates where to find the taxes in the bill and how much taxes are scheduled to increase as of June 14.

Taxes that took effect in 2010:

1. Excise Tax on Charitable Hospitals(Min$/immediate): $50,000 per hospital if they fail to meet new "community health assessment needs," "financial assistance," and "billing and collection" rules set by HHS. Bill: PPACA; Page: 1,961-1,971

2. Codification of the “economic substance doctrine” (Tax hike of $4.5 billion). This provision allows the IRS to disallow completely-legal tax deductions and other legal tax-minimizing plans just because the IRS deems that the action lacks“substance” and is merely intended to reduce taxes owed. Bill: Reconciliation Act; Page: 108-113

5. Blue Cross/Blue Shield Tax Hike ($0.4 bil/Jan 2010): The special tax deduction in current law for Blue Cross/Blue Shield companies would only be allowed if 85 percent or more of premium revenues are spent on clinical services. Bill: PPACA; Page: 2,004

10. Surtax on Investment Income ($123 billion/Jan. 2013): Creation of a new, 3.8 percent surtax on investment income earned in households making at least $250,000 ($200,000 single). This would result in the following top tax rates on investment income: Bill: Reconciliation Act; Page: 87-93

Capital Gains

Dividends

Other*

2012

15%

15%

35%

2013+

23.8%

43.4%

43.4%

*Other unearned income includes (for surtax purposes) gross income from interest, annuities, royalties, net rents, and passive income in partnerships and Subchapter-S corporations. It does not include municipal bond interest or life insurance proceeds, since those do not add to gross income. It does not include active trade or business income, fair market value sales of ownership in pass-through entities, or distributions from retirement plans. The 3.8% surtax does not apply to non-resident aliens.

11. Hike in Medicare Payroll Tax($86.8 bil/Jan 2013): Current law and changes:

13. Raise "Haircut" for Medical Itemized Deduction from 7.5% to 10% of AGI ($15.2 bil/Jan 2013): Currently, those facing high medical expenses are allowed a deduction for medical expenses to the extent that those expenses exceed 7.5 percent of adjusted gross income (AGI). The new provision imposes a threshold of 10 percent of AGI. Waived for 65+ taxpayers in 2013-2016 only. Bill: PPACA; Page: 1,994-1,995

14. Flexible Spending Account Cap – aka “Special Needs Kids Tax” ($13 bil/Jan 2013): Imposes cap on FSAs of $2500 (now unlimited). Indexed to inflation after 2013. There is one group of FSA owners for whom this new cap will be particularly cruel and onerous: parents of special needs children. There are thousands of families with special needs children in the United States, and many of them use FSAs to pay for special needs education. Tuition rates at one leading school that teaches special needs children in Washington, D.C. (National Child Research Center) can easily exceed $14,000 per year. Under tax rules, FSA dollars can be used to pay for this type of special needs education. Bill: PPACA; Page: 2,388-2,389

17. Individual Mandate Excise Tax (Jan 2014): Starting in 2014, anyone not buying “qualifying” health insurance must pay an income surtax according to the higher of the following

1 Adult

2 Adults

3+ Adults

2014

1% AGI/$95

1% AGI/$190

1% AGI/$285

2015

2% AGI/$325

2% AGI/$650

2% AGI/$975

2016 +

2.5% AGI/$695

2.5% AGI/$1390

2.5% AGI/$2085

Exemptions for religious objectors, undocumented immigrants, prisoners, those earning less than the poverty line, members of Indian tribes, and hardship cases (determined by HHS).Bill: PPACA; Page: 317-337

18. Employer Mandate Tax (Jan 2014): If an employer does not offer health coverage, and at least one employee qualifies for a health tax credit, the employer must pay an additional non-deductible tax of $2000 for all full-time employees. Applies to all employers with 50 or more employees. If any employee actually receives coverage through the exchange, the penalty on the employer for that employee rises to $3000. If the employer requires a waiting period to enroll in coverage of 30-60 days, there is a $400 tax per employee ($600 if the period is 60 days or longer).Bill: PPACA; Page: 345-346